RBI to discontinue incremental cash reserve ratio requirement for banks

The Reserve Bank of India (RBI) has decided to discontinue the requirement for scheduled banks to maintain an incremental cash reserve ratio (I-CRR) of 10 per cent on the increase in their net demand and time liabilities (NDTL).

Subsequently, the amounts impounded under the exercise would be released in stages.

This will be done to ensure that system liquidity is not subjected to sudden shocks and money markets function in an orderly manner, a statement issued by the RBI said on Friday (8 September).

In pursuance of RBI governor Shaktikanta Das’ monetary policy statement of 10 August 2023, scheduled banks were required to maintain an incremental cash reserve ratio (I-CRR) of 10 per cent on the increase in their NDTL between 19 May 2023 and 28 July 2023.

The measure was intended to absorb the surplus liquidity generated by various factors, including the return of Rs 2,000 notes to the banking system.

It was indicated that the I-CRR is a temporary measure for managing the liquidity overhang and that the I-CRR will be reviewed on 8 September 2023 or earlier, with a view to returning the impounded funds to the banking system ahead of the festival season.

Upon review, it has now been decided to discontinue the I-CRR in a phased manner, the RBI statement said.

Based on an assessment of current and evolving liquidity conditions, it has been decided that the amounts impounded under the I-CRR would be released in stages so that system liquidity is not subjected to sudden shocks and money markets function in an orderly manner.

The release of funds would be as per the following schedule:

On 9 September: 25 per cent of the I-CRR maintained.

On 23 September: 25 per cent of the I-CRR maintained.

On 7 October: 50 per cent of the I-CRR maintained.